Inflation targeting and private domestic investment in developing countries

• Autor(a) principal: Bambe, Bao-We-Wal
• Data de Publicação: 2022
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.5/25066
• topic: Inflation targeting; Private domestic investment; Developing countries; Propensity score matching; Monetary policy credibility

This paper analyzes the effect of inflation targeting on private domestic investment in developing countries. Using propensity scores matching methods, thus mitigating traditional self-selection problems, we find that inflation targeting has led to a 2.05 -2.53 percentage point increase in domestic investment in targeting countries compared to nontargeting ones. Estimates are economically meaningful and robust to various checks, notably sample changes, additional controls, alternative estimation methods, and falsification tests. A few heterogeneity features of the treatment effect are further highlighted, depending on some factors. Finally, we explore the main transmission channels and identify monetary policy credibility as the key driver of the regime’s effectiveness.